China says it must retaliate against tariffs ‘to defend the nation’s dignity’

China is not taking the United States’ latest tariff threat lightly and vows to hit back if the U.S. moves forward.

“China is fully prepared and will have to retaliate to defend the nation’s dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries,” the Chinese Ministry of Commerce said in a statement on Thursday, according to a translation provided by Bleakley Advisory Group’s Peter Boockvar. “The carrot and stick tactic won’t work.”

Derek Scissors, a resident scholar at the American Enterprise Institute, said the proposed increase is meant to account for the recent sharp decline in China’s currency. “In the past six months … China has allowed its currency, the renminbi, to depreciate. It’s depreciated a total of 8 percent since the spring. If you’re going to apply 10 percent tariffs and their currency is getting 8 percent cheaper, you’ve lost most of the effect the 10 percent tariffs,” Scissors, who has consulted with the White House on trade, told NPR on Thursday.

Trade tensions between the U.S. and China — the world’s two largest economies — have been ratcheting up. The U.S. has already imposed tariffs on $34 billion in Chinese imports, which were met with retaliatory charges by China.

“The Trump Administration continues to urge China to stop its unfair practices, open its market, and engage in true market competition. We have been very clear about the specific changes China should undertake,” Lighthizer said in a statement Wednesday. “Regrettably, instead of changing its harmful behavior, China has illegally retaliated against U.S. workers, farmers, ranchers and businesses.”

Worries around trade have kept investors on edge as they try to assess what will be the impact of a global trade war on capital markets and the global economy.